Credit is something that is very important in our society and is the currency of financial trust. If you do not have good credit, you have the potential to lose out on a lot of savings, investment opportunities, as well as jobs. So in this article, we will go over the key points you need to know in order to know how to build good credit.
A credit card is essentially a loan from a bank that can be taken out at any time during your discretion. When you use credit, you are effectively taking out a loan against the issuer of the credit card. Therefore, you have an obligation to pay that debt. A credit card issuer will impose a credit limit on you according to your credit score and credit history. Those with a bad credit score will usually have a low credit limit as well as those without a credit history. This is because there is always an inherent risk in loaning someone money.
Getting your first credit card can be an exciting venture. To some, it is a passage to adulthood. You may notice that when you first arrive at college, credit card companies bombard you with offers by having booths all around campus and giving away free stuff. All you have to do is apply and you get a bunch of free stuff. It is important that when you apply you are applying for your first credit card, that you choose wisely and do not go crazy. Because doing so, can potentially ruin your credit score before you even get your first credit card. The following pointers are guidelines that you should follow when applying for your first credit card:
The average FICO credit score in the United States is a 687. The medium credit score in the US is a 723. Which one is a better determinant of the credit worthiness of Americans? In assessing credit scores, the medium is a better indicator when assessing the credit scores of Americans on the aggregate. That is because in terms of talking about an average credit score, that is just a number and does not tell you where you fall within the credit score range—as in, what is your percentile. Whereas, if you measure credit score by the medium, you know what your score is and where it is in relation to the rest of the population. In other words, the medium score tells you precisely and accurately what your score is and where you rank.
The standard FICO credit score ranges from 300-850 and is computed using a mathematical model invented by the Fair Isaac Corporation in 1956 as a vehicle to combat lending default and assess the risk of borrowers.
All three credit bureaus (Transunion, Experian, Equifax) use a slightly different version of the FICO credit scoring system. Regardless, the original FICO system is still the most widely used credit scoring system—and also the most reputable.